CAROLINA FIRST CORP, 10-Q, 1997-08-13

CAROLINA FIRST CORP
10-Q, 1997-08-13
STATE COMMERCIAL BANKS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ to _________

Commission file number 0-15083

CAROLINA FIRST CORPORATION
(Exact name of registrant as specified in its charter)

South Carolina 57-0824914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

102 South Main Street, Greenville, South Carolina 29601
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (864) 255-7900

(Former name, former address and former fiscal year, if changed since last
report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]

The number of outstanding shares of the issuer's $1.00 par value common stock as
of August 10, 1997 was 12,128,033, which included 508,533 shares which became
issuable on July 18, 1997 in connection with the registrant's acquisition of
Lowcountry Savings Bank, Inc.

<PAGE>

CONSOLIDATED BALANCE SHEETS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
(UNAUDITED)
($ IN THOUSANDS, EXCEPT SHARE DATA)

JUNE 30, DECEMBER 31,
-------------------------------- ------------------
ASSETS 1997 1996 1996
-------------------------------- ------------------
<S> <C> <C> <C>
Cash and due from banks.................................. $ 69,191 $ 63,121 $ 86,322
Interest-earning deposits with banks..................... 28,401 15,786 26,037
Securities
Trading............................................... 1,619 4,515 2,005
Available for sale.................................... 227,946 202,769 213,889
Held for investment (market value $32,416, $26,939,
and $29,861, respectively).......................... 32,126 27,026 29,465
-------------- -------------- ------------------

Total securities.................................... 261,691 234,310 245,359
-------------- -------------- ------------------
Loans held for sale...................................... 50,181 9,532 10,449
Loans.................................................... 1,220,024 1,112,823 1,128,537
Less unearned income.................................. (14,514) (9,785) (14,211)
Less allowance for loan losses........................ (12,175) (9,070) (11,290)
-------------- -------------- -----------------

Net loans........................................... 1,193,335 1,093,968 1,103,036
-------------- -------------- ------------------
Premises and equipment................................... 30,298 40,055 32,418
Accrued interest receivable.............................. 12,336 13,100 11,913
Other assets............................................. 60,344 53,140 58,670
-------------- -------------- ------------------

$ 1,705,777 $ 1,523,012 $ 1,574,204
============== ============== ==================

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest-bearing..................................$ 228,933 $ 157,011 $ 194,067
Interest-bearing..................................... 1,103,618 1,009,205 1,086,983
-------------- -------------- -----------------

Total deposits..................................... 1,332,551 1,166,216 1,281,050
Borrowed funds......................................... 217,124 215,694 146,270
Subordinated notes..................................... 25,425 25,301 25,361
Accrued interest payable............................... 10,529 8,307 9,672
Other liabilities...................................... 9,707 8,845 6,887
-------------- -------------- ------------------

Total liabilities................................. 1,595,336 1,424,363 1,469,240
-------------- -------------- ------------------

SHAREHOLDERS' EQUITY
Preferred stock-no par value; authorized 10,000,000
shares; issued and outstanding Series 1993B
(liquidation preference $20 per share) none,
51,112, and 49,141 shares, respectively........... -- 983 943
Common stock-par value $1 per share; authorized
100,000,000 shares; issued and outstanding 11,379,286,
9,264,199, and 11,225,568 shares, respectively....... 11,379 9,264 11,226
Surplus................................................. 85,029 84,734 83,598
Retained earnings....................................... 14,201 5,331 9,546
Guarantee of Employee Stock Ownership Plan debt and
nonvested restricted stock........................... (588) (1,100) (832)
Unrealized gain (loss) on securities available for sale,
net of tax........................................... 420 (563) 483
-------------- -------------- ------------------
Total shareholders' equity.......................... 110,441 98,649 104,964
-------------- -------------- ------------------
$ 1,705,777 $ 1,523,012 $ 1,574,204
============== ============== ==================
</TABLE>

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
(UNAUDITED)
($ IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- -----------------------------------
1997 1996 1997 1996
------------------------------------- -----------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans............. $ 28,353 $ 25,240 $ 55,271 $ 50,599
Interest and dividends on securities... 3,365 3,043 6,625 5,577
Interest on short-term investments..... 232 247 446 451
------------------ ---------------- ---------------- ---------------
Total interest income................... 31,950 28,530 62,342 56,627
------------------ ---------------- ---------------- ---------------
INTEREST EXPENSE
Interest on deposits..................... 12,605 11,775 25,306 23,131
Interest on borrowed funds............... 3,484 2,842 5,723 6,156
------------------ ---------------- ---------------- ---------------
Total interest expense................. 16,089 14,617 31,029 29,287
------------------ ---------------- ---------------- ---------------
Net interest income.................... 15,861 13,913 31,313 27,340
PROVISION FOR LOAN LOSSES.................. 3,041 1,775 5,993 3,275
------------------ ---------------- ---------------- ---------------
Net interest income after provision
for loan losses...................... 12,820 12,138 25,320 24,065
------------------ ---------------- ---------------- ---------------
NONINTEREST INCOME
Service charges on deposit accounts....... 1,733 1,641 3,362 3,117
Mortgage banking income................... 824 560 1,352 1,136
Fees for trust services................... 375 308 758 644
Loan securitization income................ (105) 533 (164) 1,149
Gain on sale of branches.................. 2,250 -- 2,250 --
Gain on sale of securities................ 798 36 882 706
Sundry.................................... 729 545 1,256 1,161
------------------ ---------------- ---------------- ---------------
Total noninterest income................ 6,604 3,623 9,696 7,913
------------------ ---------------- ---------------- ---------------
NONINTEREST EXPENSES
Personnel expense......................... 6,449 5,795 12,702 12,662
Occupancy................................. 1,228 1,049 2,472 2,157
Furniture and equipment................... 951 913 1,871 1,746
Sundry.................................... 3,611 3,920 8,060 7,791
------------------ ---------------- ---------------- ---------------
Total noninterest expenses.............. 12,239 11,677 25,105 24,356
------------------ ---------------- ---------------- ---------------
Income before income taxes.............. 7,185 4,084 9,911 7,622
Income taxes................................ 2,524 1,412 3,533 2,722
------------------ ---------------- ---------------- ---------------
Net income ............................. 4,661 2,672 6,378 4,900
Dividends on preferred stock................ -- 16 -- 32
---------------- ---------------- --------------- ----------------
Net income applicable to common
shareholders....................... $ 4,661 $ 2,656 $ 6,378 $ 4,868
================== ================ ================ ===============

NET INCOME PER COMMON SHARE:*
Primary................................. $ 0.41 $ 0.24 $ 0.56 $ 0.47
Fully diluted........................... 0.41 0.24 0.56 0.43
AVERAGE COMMON SHARES OUTSTANDING:*
Primary................................. 11,436,115 11,234,497 11,439,179 10,387,608
Fully diluted........................... 11,436,115 11,347,200 11,456,636 11,335,164
CASH DIVIDENDS DECLARED PER COMMON SHARE*... $ 0.07 $ 0.06 $ 0.14 $ 0.12
</TABLE>

*Share data have been restated to reflect the six-for-five stock split declared
12/18/96.

2
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
(UNAUDITED)
($ IN THOUSANDS)

SIX MONTHS ENDED
JUNE 30,
--------------------------------------
1997 1996
--------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income ...............................................$ 6,378 $ 4,900
Adjustments to reconcile net income to net cash
used for operations
Depreciation.......................................... 1,256 1,631
Amortization of intangibles........................... 1,103 909
Provision for loan losses............................. 5,993 3,275
Gain on sale of branches.............................. (2,250) --
Gain on sale of mortgage servicing rights............. -- (121)
Gain on sale of securities............................ (882) (706)
Unrealized loss on trading securities................. 2 95
Originations of mortgage loans held for sale.......... (89,495) (93,210)
Sale of mortgage loans held for sale.................. 65,380 74,388
Proceeds from sale of trading securities.............. 455,269 285,335
Proceeds from maturity of trading securities.......... 9,043 9,568
Purchase of trading securities........................ (463,792) (293,592)
Increase in accrued interest receivable............... (423) (2,271)
Increase in accrued interest payable.................. 857 1,570
Increase in other assets.............................. (2,150) (5,680)
Increase in other liabilities......................... 2,693 4,765
----------------- -----------------
Net cash used for operating activities.................. (11,018) (9,144)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-earning deposits with banks...... (2,364) (7,123)
Proceeds from sale of securities available for sale....... 2,084 10,818
Proceeds from maturity of securities available for sale... 91,877 30,366
Proceeds from maturity of securities held for investment.. 1,092 1,785
Purchase of securities available for sale................. (107,350) (98,438)
Purchase of securities held for investment................ (3,753) (2,522)
Purchase of loans......................................... (18,779) (30,312)
Net increase in loans..................................... (108,496) (100,486)
Securitization and sale of commercial loans............... -- 95,528
Capital expenditures...................................... (817) (1,556)
Proceeds from sale of mortgage servicing rights........... -- 900
Net cash outflow from sale of branches.................... (35,656) --
----------------- -----------------
Net cash used for investing activities ................. (182,162) (101,040)
----------------- -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits.................................. 106,109 70,725
Increase in borrowed funds............................... 70,854 27,859
Redemption of preferred stock............................. -- (204)
Cash dividends paid....................................... (1,581) (1,683)
Other common stock activity............................... 667 838
----------------- -----------------
Net cash provided by financing activities............... 176,049 97,535
----------------- -----------------
Net change in cash and due from banks....................... (17,131) (12,649)
Cash and due from banks at beginning of period.............. 86,322 75,770
----------------- -----------------
Cash and due from banks at end of period....................$ 69,191 $ 63,121
================= =================
</TABLE>

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAROLINA FIRST CORPORATION AND SUBSIDIARIES

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of these policies is included in the 1996 Annual Report to
Shareholders.

(2) STATEMENTS OF CASH FLOWS

Cash includes currency and coin, cash items in process of collection
and due from banks. Interest paid, net of interest capitalized as a
part of the cost of construction, amounted to approximately $30,172,000
for the six months ended June 30, 1997. Income tax payments of
$3,000,000 and $83,000 were made for the six months ended June 30, 1997
and June 30, 1996, respectively.

(3) BUSINESS COMBINATIONS

On April 6, 1997, the Company completed the sale of five branches
located in Barnwell, Blackville, Salley, Springfield and Williston to
The Bank of Barnwell County, a wholly-owned subsidiary of Community
Capital Corporation, headquartered in Greenwood, South Carolina. In
connection with this transaction, Carolina First Bank recorded a gain
of $2,250,000 and sold loans of approximately $15 million and deposits
of approximately $55 million.

On July 18, 1997, the Company acquired Lowcountry Savings Bank, Inc., a
South Carolina- chartered savings bank headquartered in Mt. Pleasant,
South Carolina ("Lowcountry"), through the merger of Lowcountry with
and into Carolina First Bank. The Lowcountry transaction was accounted
for as a purchase and resulted in the payment of approximately $13
million for the outstanding shares of Lowcountry common stock. Of this
amount, approximately $4.8 million was paid in cash, and approximately
$8.2 million was paid in the form of the issuance of 508,533 shares of
the Company's common stock. At June 30, 1997, Lowcountry operated
through five locations in the Mt. Pleasant/Charleston area and had
approximately $80 million in assets. In connection with the Lowcountry
transaction, Carolina First Bank received approximately $73 million
in loans and approximately $64 million in deposits.

<PAGE>

(4) SECURITIES

The net unrealized gain on securities available for sale decreased
$381,000 for the six months ended June 30, 1997.

(5) COMMON STOCK

Primary earnings per share is based on the weighted average number of
common shares outstanding during each period, including the assumed
exercise of dilutive stock options, using the treasury stock method.
Primary earnings per share also reflect provisions for dividend
requirements on all outstanding shares of preferred stock.

Fully diluted earnings per share is based on the weighted average
number of common shares outstanding during each period, including the
assumed conversion of convertible preferred stock into common stock and
the assumed exercise of dilutive stock options using the treasury stock
method.

In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute the earnings per share and
to restate all prior periods. Under the new requirements for
calculating primary earnings per share (to be called "basic earnings
per share"), the dilutive effect of stock options will be excluded.
Fully diluted earnings per share (to be called "diluted earnings per
share") will continue to be calculated using the treasury stock method
with one difference. Instead of using the higher of the quarter end
stock price or the average stock price for the quarter in calculating
the dilutive effect, the average stock price for the quarter will
always be used. The new requirements are not expected to have a
material impact on the Company's earnings per share.

(6) COMMITMENTS AND CONTINGENT LIABILITIES

In March 1997, the federal court dismissed counterclaims filed by the
Bowers (described in earlier public filings), who contended that the
Company has misstated earnings and made fraudulent representations in
connection with the merger of Midlands National Bank ("Midlands") into
Carolina First Bank (the"Merger") in June 1995. In April 1997, the
Company announced the settlement of two lawsuits involving David Bowers
and Monte Bowers, former officers and shareholders of Midlands. One of
the lawsuits had been brought by the Bowers against Carolina First Bank
in state court, alleging breach of employment contracts as officers of
Carolina First Bank following the Merger. The other lawsuit was brought
in federal court by Carolina First Bank against the Bowers, alleging
that the Bowers had committed bank fraud and securities fraud in
connection with the Merger. The Company is prohibited from disclosing
the specific terms of the settlement agreement. Both suits have been
dismissed in connection with the settlement.

<PAGE>

(7) MANAGEMENT'S OPINION

The financial statements in this report are unaudited. In the opinion
of management, all adjustments necessary to present a fair statement of
the results for the interim periods have been made. All such
adjustments are of a normal, recurring nature.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES AND WITH THE
STATISTICAL INFORMATION AND FINANCIAL DATA APPEARING IN THIS REPORT AS WELL AS
THE 1996 ANNUAL REPORT OF CAROLINA FIRST CORPORATION (THE "COMPANY") ON FORM
10-K. RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997 ARE NOT
NECESSARILY INDICATIVE OF RESULTS TO BE ATTAINED FOR ANY OTHER PERIOD.

OVERVIEW

The Company, a South Carolina corporation headquartered in Greenville,
South Carolina, is a financial institution, which commenced banking operations
in December 1986, and currently conducts business through 54 locations in South
Carolina. The Company operates through four subsidiaries: Carolina First Bank, a
state-chartered commercial bank; Carolina First Mortgage Company ("CF
Mortgage"), a mortgage banking operation; Blue Ridge Finance Company, Inc.
("Blue Ridge"), an automobile finance company; and CF Investment Company, a
small business investment company. Through its subsidiaries, the Company
provides a full range of banking services, including mortgage, trust and
investment services, designed to meet substantially all of the financial needs
of its customers. At June 30, 1997, the Company had approximately $1.7 billion
in assets, $1.3 billion in loans, $1.3 billion in deposits and $110.4 million in
shareholders' equity.

Net income for the second quarter of 1997 was $4.7 million, or $0.41
per fully diluted share, compared with $2.7 million, or $0.24 per fully diluted
share, for the same time period of 1996. Second quarter 1997 earnings included
$1.5 million (after-tax), or $0.13 per fully diluted share, from a gain
associated with the sale of five branches. The increase in net income during the
second quarter of 1997 was a result of increases in both net interest income and
noninterest income. The increase in net interest income was attributable to
higher average earning assets, which increased 12%, and a higher net interest
margin. Noninterest income included a gain of $2,250,000 from the sale of
branches and a gain of $798,000 from the sale of securities. These increases
were partially offset by an increase in the provision for loan losses and lower
loan securitization income, primarily from higher credit card charge-offs than
those historically experienced. Net income for the first six months of 1997
totaled $6.4 million, or $0.56 per fully diluted share, compared with $4.9
million, or $0.43 per fully diluted share, for the same period of 1996.

On January 30, 1997, the Company issued a six-for-five stock split
effected in the form of a 20% common stock dividend to shareholders of record as
of January 15, 1997. Share and per share data for all periods presented have
been retroactively restated to reflect the additional shares outstanding
resulting from the stock dividend. On February 1, 1997, all outstanding shares
of the Series 1993B Cumulative Convertible Preferred Stock ("Series 1993B
Preferred Stock") were converted into the Company's $1.00 par value common stock
("Common Stock").

On April 6, 1997, the Company completed the sale of five branches
located in Barnwell, Blackville, Salley, Springfield and Williston to The Bank
of Barnwell County, a wholly-owned subsidiary of Community Capital Corporation,
headquartered in Greenwood, South Carolina. In connection with this transaction,
Carolina First Bank recorded a gain of $2,250,000 and sold loans of
approximately $15

<PAGE>

million and deposits of approximately $55 million.

On July 1, 1997, the Company signed a definitive agreement to acquire
First Southeast Financial Corporation ("First Southeast"), the holding company
for First Federal Savings and Loan Association of Anderson ("First Federal")
based in Anderson, South Carolina. First Federal will be merged into Carolina
First Bank, a wholly-owned subsidiary of Carolina First Corporation, and its
operations will become part of the operations of Carolina First Bank. First
Southeast shareholders will receive 1.0 share of the Company's Common Stock for
each share of First Southeast stock, subject to adjustment in the event of a 10%
movement in the Company's stock based on a price of $15.2125. This transaction
is expected to result in the issuance of approximately 4,388,231 shares of the
Company's common stock. At June 30, 1997, First Southeast had approximately $349
million in assets, $274 million in loans and $285 million in deposits. The
Company will record the acquisition using the purchase method of accounting.
This transaction, which is subject to receipt of shareholder and regulatory
approvals, is expected to be completed during the fourth quarter of 1997. On
July 29, 1997, the Company filed a registration on Form S-4 with the Securities
and Exchange Commission to register additional shares of common stock expected
to be issued in connection with the First Southeast merger.

On July 18, 1997, the Company acquired Lowcountry Savings Bank, Inc., a
South Carolina- chartered savings bank headquartered in Mt. Pleasant, South
Carolina ("Lowcountry"), through the merger of Lowcountry with and into Carolina
First Bank. The Lowcountry transaction was accounted for as a purchase and
resulted in the payment of approximately $13 million for the outstanding shares
of Lowcountry common stock. Of this amount, approximately $4.8 million was paid
in cash, and approximately $8.2 million was paid in the form of the issuance of
508,533 shares of the Company's common stock. At June 30, 1997, Lowcountry
operated through five locations in the Mt. Pleasant/Charleston area and had
approximately $80 million in assets. In connection with the Lowcountry
transaction, Carolina First Bank received approximately $73 million in loans and
approximately $64 million in deposits.

EQUITY INVESTMENTS

INVESTMENT IN AFFINITY TECHNOLOGY GROUP, INC.

At June 30, 1997, the Company (through its subsidiary Blue Ridge) owned
128,366 shares of common stock of Affinity Technology Group, Inc. ("Affinity")
and a warrant to purchase an additional 5,871,340 shares for approximately
$0.0001 per share ("Affinity Warrant"), or approximately 17% of Affinity's
outstanding common stock. At June 30, 1997, the investment in Affinity's common
stock, included in securities available for sale, was recorded at its market
value of $497,000. The Affinity Warrant was not reported on the Company's
balance sheet as of June 30, 1997.

The Company's shares in Affinity are, and the shares issuable upon the
exercise of the Affinity Warrant will be, "restricted" securities as that term
is defined in federal securities laws.

The Affinity Warrant may be exercised in whole or in part at any time
prior to December 31, 2015, subject to certain restrictions. Unless prior
written approval of the Board of Governors of the Federal Reserve Board (the
"Federal Reserve Board") is received, the Affinity Warrant may not be exercised
in whole or in part if, after such exercise, the holder of the Affinity Warrant
will beneficially own 5% or more of Affinity's common stock. The Affinity
Warrant may not be transferred without the

<PAGE>

approval of the Federal Reserve Board. The Affinity Warrant has been filed as an
exhibit in the Company's periodic filings with the Securities and Exchange
Commission. The Company has an application pending with the Federal Reserve
Board which, if approved, would permit the Company to exercise the Affinity
Warrant for up to 15% of Affinity's total common stock outstanding and own the
resulting shares outright.

The Company has reviewed its options with respect to its investment in
Affinity and currently has no plans to distribute or sell at the current price.
The Company's Board of Directors will continue to periodically review the
investment in Affinity and may decide to change the policy with respect to its
Affinity ownership position in the future.

INVESTMENT IN NET.B@NK, INC.

On July 31, 1997, Net.B@nk, Inc. ("Net.B@nk") completed its initial
public offering of common stock. Net.B@nk owns and operates the Atlanta Internet
Bank, FSB ("Atlanta Internet Bank"), a FDIC- insured federal savings bank that
provides banking services to consumers utilizing the Internet for their
commercial and financial services. Carolina First Bank assisted with the
development of Atlanta Internet Bank, including offering of Atlanta Internet
Bank as a service of Carolina First Bank prior to the completion of Net.B@nk's
initial public offering. In connection with Net.B@nk's initial public offering,
the Company sold 150,000 shares of its Net.B@nk common stock. The Company owns
1,175,000 shares of Net.B@nk's common stock, or approximately 18% of the
outstanding shares. Under the terms of the Office of Thrift Supervision's
approval of Atlanta Internet Bank, certain insiders, including the Company, may
not sell shares of Net.B@nk for three years following the initial public
offering. Carolina First Bank has been reimbursed by Net.B@nk for approximately
$2 million of start-up costs, included in other assets as of June 30, 1997,
related to the development of Atlanta Internet Bank.

EARNINGS REVIEW

NET INTEREST INCOME

The largest component of the Company's net income is Carolina First
Bank's net interest income. Net interest income is the difference between the
interest earned on assets and the interest paid for the liabilities used to
support such assets. Fully tax-equivalent net interest income adjusts the yield
for assets earning tax-exempt income to a comparable yield on a taxable basis.
Fully tax equivalent net interest income increased $4.3 million, or 16%, to
$31.7 million for the first six months of 1997 from $27.4 million for the first
six months of 1996. The increase resulted principally from a higher level of
average earning assets and a higher net interest margin. The growth in average
earning assets, which increased $152.6 million, or 12%, to approximately $1.4
billion in the first six months of 1997 from $1.3 billion in the first six
months of 1996, resulted from an increase in both loans and investment
securities. Average loans and average investment securities increased $111.3
million and $29.1 million, respectively, in the first six months of 1997
compared with the first six months of 1996.

The net interest margin for the six months ended June 30, 1997 of 4.45%
was higher than the margin of 4.29% for the same period of 1996. Deposits as a
percentage of interest-bearing liabilities increased to 85% in 1997 from 83%.
The cost of deposits was lower than the cost of borrowed funds (which make up
the remainder of interest-bearing liabilities), thus lowering the overall cost
of funds. The higher net interest margin in the first six months of 1997
resulted principally from the benefit of leverage

<PAGE>

from higher levels of noninterest-bearing deposits. A significant portion of the
increase in noninterest- bearing deposits was associated with Carolina First
Bank's agreement with Net.B@nk to offer Atlanta Internet Bank as a service of
Carolina First Bank. Atlanta Internet Bank deposits were transferred to Net.B@nk
on July 31, 1997 resulting in a reduction in Carolina First Bank's total
noninterest-bearing deposits of approximately $43 million. This transfer of
deposits is expected to put downward pressure on the Company's net interest
margin from losing the leverage benefit from the Atlanta Internet Bank deposits.

PROVISION FOR LOAN LOSSES

The provision for loan losses was $6.0 million for the first six months
of 1997 and $3.3 million for the first six months of 1996. The 1997 provision
for loan losses was increased principally as a result of Carolina First Bank's
credit card activities and consumer credit concerns. During the first six months
of 1997, credit card charge-offs totaled $3.4 million, which was considerably
higher than the level of charge-offs historically experienced.

Management currently anticipates that loan growth will continue in
1997. New market areas are expected to contribute to 1997 portfolio growth.
Management intends to closely monitor economic trends and the potential effect
on Carolina First Bank's loan portfolio.

NONINTEREST INCOME

Noninterest income increased to $9.7 million for the six months ended
June 30, 1997 from $7.9 million for the same period of 1996. During the second
quarter of 1997, the Company recorded a gain on the sale of branches of
$2,250,000. See "OVERVIEW." The Company recognized gains on the sale of
securities of $882,000 and $706,000 in the first six months of 1997 and 1996,
respectively. The securities gain in 1997 included $745,000 from the sale of
ComSouth Bankshares, Inc. stock. The securities gain in 1996 included $587,000
from the disposition of equity investments (offset by $587,000 recorded as
compensation expense) related to the award of Affinity stock to certain officers
of the Company deemed most responsible for the Company's investment in Affinity.
Excluding the asset sale and securities transactions discussed above,
noninterest income decreased $600,000 to $6.6 million for the six months ended
June 30, 1997 from $7.2 million for the same period of 1996. This decrease was
attributable to lower loan securitization income, which declined $1.3 million
for the first six months of 1997 compared with the year earlier period,
resulting from higher credit card charge-offs associated with the securitized
credit card trust.

Service charges on deposit accounts, the largest contributor to
noninterest income, rose 8% to $3.4 million in the first six months of 1997 from
$3.1 million in the first six months of 1996. Average deposits for the same
period increased 12.4%. The increase in service charges was attributable to
attracting new transaction accounts and improved collection results. In
addition, effective March 1, 1997, Carolina First Bank implemented increases in
some of its existing service charges.

During the first six months of 1997, the Company had a loss of $164,000
from its interests in the credit card and commercial real estate loan trusts,
compared to income of $1.1 million for the same period in 1996. Loan
securitization income is net of charge-offs associated with the loans in the
trusts. Loan securitization income related to credit cards declined
significantly to a loss of $479,000 for the first half of 1997, compared with
income of $862,000 for the first half of 1996. The loan securitization income
was negatively impacted by greater than expected charge-offs in the credit card
securitization. The Company

<PAGE>

completed the securitization of approximately $116 million in commercial real
estate loans on March 14, 1996. Securitization income for the commercial real
estate loan trust, which has not experienced charge-off problems, totaled
$315,000 for the first six months of 1997, compared with $287,000 for the same
period of 1996.

Mortgage banking income includes origination fees, gains from the sale
of loans and servicing fees (which are net of the related amortization for the
mortgage servicing rights and subservicing payments). Mortgage banking income in
the first six months of 1997 increased 19% to $1.3 million, compared with $1.1
million in the first six months of 1996. The increase is attributable to higher
gains on the sale of loans partially offset by lower origination volumes.

Income from originations and sales of mortgage loans, including sales
of loans originated by Carolina First Bank, totaled $957,000 in the first six
months of 1997, up from $724,000 for the first six months of 1996. This increase
resulted from selling mortgage loans at a gain in 1997. A loss was recognized on
the sale of mortgage loans in the first half of 1996. Loans totaling
approximately $24 million and $74 million were sold in the first half of 1997
and 1996, respectively. This increase from the sale of mortgage loans was
partially offset by a 4% decrease in origination fees attributable to lower
internally originated loan volume as a result of higher mortgage loan rates.

CF Mortgage's mortgage servicing operations consist of servicing loans
that are owned by Carolina First Bank and subservicing loans, to which the
rights to service are owned by Carolina First Bank or other non-affiliated
financial institutions. At June 30, 1997, CF Mortgage was servicing or
subservicing 15,792 loans having an aggregate principal balance of approximately
$1.4 billion.

Servicing income from non-affiliated companies, net of the related
amortization for the mortgage servicing rights and subservicing payments, was
$395,000, compared with $412,000 for the first six months of 1996. Although the
volume of loans serviced increased to $1.4 billion at June 30, 1997 from $985
million at June 30, 1996, the related amortization for the mortgage servicing
rights increased due to accelerated prepayments leading to a decline in
servicing income. The servicing income does not include the benefit of
interest-free escrow balances related to mortgage loan servicing activities.

Fees for trust services in the first six months of 1997 of $758,000
were 18% above the $644,000 earned in the same period of 1996. At June 30, 1997,
Carolina First Bank's trust department had assets under management of
approximately $449 million. Fees for trust services increased as a result of the
generation of new trust business and additional assets under management.

NONINTEREST EXPENSES

Noninterest expenses increased $749,000, or 3%, to $25.1 million in the
first six months of 1997 from $24.4 million in the first six months of 1996. In
the first quarter of 1996, approximately $587,000 was recorded as compensation
expense related to a non-recurring award of Affinity stock to certain officers
of the Company. The increase in expenditures reflects the cost of operating in
new markets, the costs associated with the purchase of additional automated
teller machines ("ATMs") to better service existing customers, and higher
advertising expense related to campaigns to attract new deposit balances.
Excluding the nonrecurring compensation expense, noninterest expenses increased
$1.3 million, or 6%, from $23.8 million for the first six months of 1996.

Salaries and wages and employee benefits, excluding the $587,000 in
non-recurring compensation

<PAGE>

expense in 1996, increased $627,000 to $12.7 million in the first six months of
1997. Full-time equivalent employees increased to 622 at June 30, 1997 from 605
at June 30, 1996.

Occupancy and furniture and equipment expenses increased $440,000, or
11%, to $4.3 million for the six months ended June 30, 1997 from $3.9 million
for the six months ended June 30, 1996. This increase resulted principally from
the opening of a new Hilton Head office and the addition of thirteen new ATMs
since the beginning of 1996, setting the total number of ATMs at 31.

Sundry noninterest expenses increased $269,000, or 4%, to $8.1 million
in the first six months of 1997 from $7.8 million in the first six months of
1996. The overall increase in sundry noninterest expenses was principally
attributable to the overhead and operating expenses associated with higher
lending and deposit activities. The largest items of sundry noninterest expense
were stationery, supplies, printing, legal fees and advertising. During the
second half of 1997, the Company expects to incur increased amortization of
intangibles related to the acquisition of Lowcountry in July 1997 and the
planned acquisition of First Southeast in the fourth quarter of 1997. Both
acquisitions will be accounted for using the purchase method of accounting.

COMPARISON FOR THE QUARTERS ENDED JUNE 30, 1997 AND JUNE 30, 1996

Net income increased in the second quarter of 1997 to $4.7 million from
$2.7 million in the second quarter of 1996. Fully diluted earnings per share
increased to $0.41 in the second quarter of 1997, compared with $0.24 in the
second quarter of 1996. Second quarter 1997 earnings included $1.5 million
(after-tax), or $0.13 per fully diluted share, from a gain associated with the
sale of five branches.

Net interest income increased $1.9 million to $15.9 million for the
three months ended June 30, 1997 from $13.9 million for the comparable period in
1996. This increase was primarily attributable to a higher level of average
earning assets. Earning assets averaged $1.5 billion and $1.3 billion in the
second quarters of 1997 and 1996, respectively. The net interest margin was
slightly higher in 1997 at 4.38% for the second quarter, compared with 4.31% for
the second quarter of 1996.

Noninterest income, excluding the gains on the sale of branches and
securities, was comparable between years at $3.6 million for the second quarters
of 1997 and 1996. Loan securitization income decreased significantly to a loss
of $105,000 for the second quarter of 1997 from income of $533,000 for the
second quarter of 1996. This decrease was attributable to higher credit card
charge-offs for credit card loans in the securitized credit card trust. The
majority of this decline was offset by increases in service charges on deposit
accounts, mortgage banking income and fees for trust services.

Noninterest expenses increased $562,000, or 5%, to $12.2 million for
the three months ended June 30, 1997 from $11.7 million for the three months
ended June 30, 1996. The majority of this change was due to higher salaries,
wages and benefits expense which increased from $5.8 million for the second
quarter of 1996 to $6.4 million for the second quarter of 1997. Occupancy and
furniture and equipment expense increased slightly to $2.2 million during second
quarter 1997 from $2.0 million during second quarter 1996. Sundry noninterest
expenses decreased 8% from second quarter 1996 to second quarter 1997, largely
because of reductions in professional fees, legal fees and losses on other real
estate owned.

<PAGE>

BALANCE SHEET REVIEW

LOANS

The Company's loan portfolio consists of commercial mortgage loans,
commercial loans, consumer loans and one-to-four family residential mortgage
loans. A substantial majority of these borrowers are located in South Carolina
and are concentrated in the Company's market areas. The Company has no foreign
loans or loans for highly leveraged transactions. The loan portfolio does not
contain any industry concentrations of credit risk exceeding 10% of the
portfolio. At June 30, 1997, the Company had total loans outstanding of $1.3
billion which equaled approximately 94% of the Company's total deposits and
approximately 74% of the Company's total assets. The composition of the
Company's loan portfolio at June 30, 1997 follows: commercial and commercial
mortgage 67%, consumer 10%, residential mortgage 8%, lease receivables 7%,
credit card 5% and construction 3%.

The Company's loans increased $143.1 million, or 13%, to approximately
$1.3 billion at June 30, 1997 from $1.1 billion at June 30, 1996 and increased
$130.9 million from approximately $1.1 billion at December 31, 1996. This
increase was net of 1997 loan sales of approximately $15 million from the sale
of branches to The Bank of Barnwell County and $65 million from mortgage loans
sold. Loan balances as of June 30, 1997 included $19 million of lease
receivables purchased during 1997. Adjusting for the 1997 loan sales and
purchases, internal loan growth was approximately $192.5 million, or an
annualized rate of 34.2%, during the first six months of 1997.

The Company had loans to 92 borrowers having principal amounts ranging
from $2 million to $5 million, which loans accounted for $281.0 million, or 22%,
of the Company's loan portfolio in 1997. The Company had loans to 13 borrowers
having principal amounts in excess of $5 million, which loans accounted for
$87.0 million, or 7%, of the Company's loan portfolio in 1997. For the same time
period in 1996, the Company had loans to 50 borrowers with principal amounts
ranging from $2 million to $5 million, which accounted for $150.5 million, or
14%, of the Company's loan portfolio. The Company had loans to four borrowers
having principal amounts in excess of $5 million, which loans accounted for
$25.3 million, or 2%, of the Company's loan portfolio in 1996. Although the
larger loans have increased as a percentage of the total loan portfolio, the
Company has attempted to limit its risk exposure on these loans through
securitization and participations. Any material deterioration in the quality of
any of these larger loans could have a significant impact on the Company's
earnings.

For the first six months of 1997, the Company's loans averaged $1.2
billion with a yield of 9.33%, compared with $1.1 billion and a yield of 9.42%
for the same period of 1996. The decline in loan yield was partially
attributable to the funding of credit card loans from a first quarter 1997
credit card solicitation at a teaser rate. The teaser rate from the 1997
solicitation will expire in August 1997. The interest rates charged on loans
vary with the degree of risk and the maturity and amount of the loan.
Competitive pressures, money market rates, availability of funds and government
regulations also influence interest rates.

Securitization and packaging and selling loans are part of the
Company's funding strategy. The Company engages in these transactions because
they fund loan growth by moving loans off-balance-sheet while allowing the
Company to retain the related income stream and servicing relationships.

The Company has entered into an agreement with the Atlanta Internet
Bank to sell approximately $30 million in mortgage, home equity and consumer
loans at the current market rate. This sale of loans is

<PAGE>

expected to be completed in August 1997.

ALLOWANCE FOR LOAN LOSSES

Management maintains an allowance for loan losses which it believes is
adequate to cover possible losses in the loan portfolio. However, management's
judgment is based upon a number of assumptions about future events which are
believed to be reasonable, but which may or may not prove valid. Thus, there can
be no assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional increases in the allowance for loan losses
will not be required.

The allowance for loan losses is established through charges in the
form of a provision for loan losses. Loan losses and recoveries are charged or
credited directly to the allowance. The amount charged to the provision for loan
losses by the Company is based on management's judgment as to the amount
required to maintain an allowance adequate to provide for potential losses in
the Company's loan portfolio. The level of this allowance is dependent upon the
total amount of past due loans, general economic conditions and management's
assessment of potential losses.

The allowance for loan losses totaled $12.2 million, or 1.01% of loans
net of unearned income excluding loans held for sale, at the end of June 1997,
compared with $9.1 million, or 0.82% of loans net of unearned income excluding
loans held for sale, at the end of June 1996. At December 31, 1996, the
allowance for loan losses was $11.3 million, or 1.01% of loans net of unearned
income excluding loans held for sale. The allowance for loan losses as a
percentage of nonperforming loans was 591% and 552% as of June 30, 1997 and
1996, respectively.

Annualized net charge-offs as a percentage of average loans during the
first six months of 1997 were 0.96%, compared with 0.64% for the first six
months of 1996. Excluding credit cards, annualized net charge-offs as a
percentage of average loans were 0.54% during the second quarter of 1997
compared with 0.46% in the second quarter of 1996. During the first six months
of 1997, net charge-offs for credit cards totaled $3.4 million, a higher level
than those historically experienced. The Company has examined various options
for the credit card portfolio, including selling part of the portfolio, and has
determined to continue to hold the portfolio. The Company's credit card servicer
has made some meaningful changes regarding collection procedures including
linking servicing fees to collection results, staffing changes and incentives
for collectors.

<PAGE>

Table 1 presents changes in the allowance for loan losses.

TABLE 1
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)

At and for
At and for the six months the year ended
ended June 30, December 31,
1997 1996 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 11,290 $ 8,661 $ 8,661
Valuation allowance for loans purchased 364 592 1,261
Provision for loan losses 5,993 3,275 10,263
Charge-offs:
Credit cards 3,386 1,792 4,072
Bank loans, leases & Blue Ridge 2,943 2,375 4,085
Fraudulent acquired loans 0 0 1,303
Recoveries 857 709 565
- ----------------------------------------------------------------------------------------------
Net charge-offs 5,472 3,458 8,895
- ----------------------------------------------------------------------------------------------
Allowance at end of period $ 12,175 $ 9,070 $ 11,290
==============================================================================================
</TABLE>

At June 30, 1997, the recorded investment in loans that were considered
to be impaired under Statement of Financial Accounting Standards 114,
"Accounting by Creditors for Impairment of a Loan", was $778,000. The related
allowance for these impaired loans was $601,000. The average recorded investment
and foregone interest on impaired loans during the six months ended June 30,
1997 was approximately $826,000 and $44,000, respectively. For the six months
ended June 30, 1997, the Company recognized interest income on impaired loans of
$56,000.

SECURITIES

At June 30, 1997, the Company's total investment portfolio had a book
value of $261.0 million and a market value of $262.0 million for an unrealized
net gain of approximately $1.0 million. The investment portfolio had a weighted
average maturity of approximately 1.7 years. Securities (i.e., securities held
for investment, securities available for sale and trading securities) averaged
$228.4 million in the first six months of 1997, 15% above the first six month
1996 average of $199.2 million. The increase in the securities balance was due
to increasing the Company's investment in short-term government securities to
increase the Company's liquidity. The average portfolio yield increased to 6.18%
for the first six months of 1997 from 5.98% for the first six months of 1996.
The portfolio yield increased due to maturities of lower yielding government
securities which were reinvested at higher rates. At June 30, 1997, securities
totaled $261.7 million, up $27.4 million from the $234.3 million invested as of
the second quarter end 1996 and up $16.3 million from the December 31, 1996
balance of $245.4 million.

At June 30, 1997, the Company owned 128,366 shares of common stock of
Affinity and a warrant to purchase an additional 5,871,340 shares of Affinity's
common stock at a purchase price of $0.0001 per share. As of June 30, 1997, the
investment in Affinity's common stock, included in securities available for
sale, was recorded at its market value of $497,000. The Affinity Warrant was not
included in securities at June 30, 1997.

<PAGE>

OTHER ASSETS

At June 30, 1997, other assets included other real estate owned of $2.4
million, intangible assets (excluding mortgage servicing rights) of $15.8
million and mortgage servicing rights of $17.5 million. At June 30, 1996, other
assets included other real estate owned of $2.8 million, intangible assets
(excluding mortgage servicing rights) of $17.4 million and mortgage servicing
rights of $8.4 million. The intangible assets balance at June 30, 1997 was
attributable to goodwill of $7.3 million, core deposit balance premiums of $8.3
million and purchased credit card premiums of $173,000. The Company expects the
goodwill and core deposit premium balances to increase significantly during the
remainder of 1997 in connection with the Company's acquisition of Lowcountry in
July 1997 and the planned acquisition of First Southeast in the fourth quarter
of 1997. Both acquisitions will be recorded using the purchase method of
accounting.

INTEREST-BEARING LIABILITIES

During the first six months of 1997, interest-bearing liabilities
averaged $1.1 billion, compared with $987 million for the comparable period of
1996. This increase resulted principally from internal deposit growth related to
account promotions, sales efforts and entrance into new markets. The average
interest rates remained constant at 4.74% for the first six months of both 1997
and 1996. At June 30, 1997, interest-bearing deposits comprised approximately
84% of total deposits and 85% of interest-bearing liabilities. For the first six
months of 1997, average borrowed funds, which included Federal Home Loan Bank
("FHLB") advances and other short-term borrowings, totaled $188.3 million,
compared with $206.6 million for the first six months of 1996. This decrease was
attributable to average advances from the FHLB which declined to $62.5 million
for the first six months of 1997 from $85.0 million for the comparable period a
year earlier. The Company increased its FHLB advances to $105.0 million at June
30, 1997 from $40.0 million at December 31, 1996. FHLB advances are a source of
funding which the Company uses depending on the current level of deposits and
management's willingness to raise deposits through market promotions given the
competitiveness of the deposit market and the Company's cost of funds. The
Company has increased its emphasis on retail banking and raises deposits through
market promotions and sales efforts. In general, the Company believes that
potential benefits of cross-selling these customers other products and services
would offset any increase in the cost of funds over the rate paid for FHLB
advances.

Carolina First Bank's primary source of funds for loans and investments
is its deposits which are gathered through Carolina First Bank's branch network.
Deposits grew 14% to $1.3 billion at June 30, 1997 from $1.2 billion at June 30,
1996. At December 31, 1996, deposits totaled $1.3 billion. During the second
quarter of 1997, approximately $55 million in deposits were sold as part of the
sale of five branch offices. Internal growth, particularly from account
promotions and new markets, generated the new deposits. During the first six
months of 1997, total interest-bearing deposits averaged $1.1 billion with a
rate of 4.74%, compared with $987.0 million with a rate of 4.74% in 1996. During
the first six months of 1997, deposit pricing was very competitive in Carolina
First Bank's market areas, resulting in upward pressure on deposit interest
rates. The Company expects this competitive deposit environment to continue.
The Company does not believe that it has any brokered deposits.

Average noninterest-bearing deposits, which increased 35% during the
year, increased to 16.0% of average total deposits in the first six months of
1997 from 13.2% in the first six months of 1996. This increase was primarily
attributable to new accounts from offering the Atlanta Internet Bank service,
commercial loan customers and escrow balances related to mortgage servicing
operations. Atlanta Internet

<PAGE>

Bank deposits were transferred to Net.B@nk on July 31, 1997 resulting in a
reduction in Carolina First Bank's total deposits of approximately $43 million,
which will decrease Carolina First Bank's noninterest- bearing deposit balances.

The Company's core deposit base consists of consumer time deposits,
savings, NOW accounts, money market accounts and checking accounts. Although
such core deposits are becoming increasingly interest sensitive for both the
Company and the industry as a whole, such core deposits continue to provide the
Company with a large and stable source of funds. Core deposits as a percentage
of average total deposits averaged approximately 86% for the first six months of
1997. The Company closely monitors its reliance on certificates of deposit
greater than $100,000, which are generally considered less stable and less
reliable than core deposits.

CAPITAL RESOURCES AND DIVIDENDS

Total shareholders' equity amounted to $110.4 million, or 6.47% of
total assets, at June 30, 1997, compared with $98.6 million, or 6.48% of total
assets, at June 30, 1996. At December 31, 1996, shareholders' equity totaled
$105.0 million, or 6.67% of total assets. The $5.4 million increase in total
shareholders' equity since December 31, 1996 resulted principally from retention
of earnings and an unrealized gain on securities available for sale less cash
dividends paid.

The Company's capital needs have been met principally through public
offerings of common stock, preferred stock and subordinated notes and through
the retention of earnings. In addition, the Company issued capital stock in
connection with the acquisitions of Carolina First Savings Bank, CF Mortgage,
Aiken County National Bank, Midlands National Bank, Blue Ridge and Lowcountry.

On February 1, 1997, all outstanding shares of the Series 1993B
Cumulative Convertible Preferred Stock ("Series 1993B Preferred Stock") were
converted into the Company's Common Stock. In connection with such conversion,
the Company issued 108,341 shares of its Common Stock.

Book value per share at June 30, 1997 and 1996 was $9.68 and $8.78,
respectively. Tangible book value per share at June 30, 1997 and 1996 was $8.30
and $7.23, respectively. At December 31, 1996, book value and tangible book
value were $9.26 and $7.80, respectively. Tangible book value was below book
value as a result of the purchase premiums associated with branch acquisitions
and the purchase of CF Mortgage.

At June 30, 1997, the Company and Carolina First Bank were in
compliance with each of the applicable regulatory capital requirements. Table 2
sets forth various capital ratios for the Company and Carolina First Bank.

<PAGE>

TABLE 2
CAPITAL RATIOS

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------

As of Well Capitalized Adequately Capitalized
6/30/97 Requirement Requirement
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Company:
Total Risk-based Capital 10.01% 10.0% 8.0%
Tier 1 Risk-based Capital 7.16 6.0 4.0
Leverage Ratio 5.59 5.0 4.0

Carolina First Bank:
Total Risk-based Capital 9.58 10.0 8.0
Tier 1 Risk-based Capital 8.73 6.0 4.0
Leverage Ratio 6.78 5.0 4.0
- --------------------------------------------------------------------------------------------
</TABLE>

The Company and its subsidiaries are subject to certain regulatory
restrictions on the amount of dividends they are permitted to pay. In November
1993, the Board of Directors initiated a regular quarterly cash dividend payable
on the Common Stock, the first of which was paid on February 1, 1994. Cash
dividends have been paid on a quarterly basis since the initiation of the cash
dividend. The Company presently intends to continue to pay this quarterly cash
dividend on the Common Stock; however, future dividends will depend upon the
Company's financial performance and capital requirements.In each year from 1989
through 1995, the Company issued 5% common stock dividends to common
shareholders.

At the December 18, 1996 meeting, the Board of Directors declared a
six-for-five stock split effected in the form of a 20% common stock dividend
which was issued on January 30, 1997 to shareholders of record as of January 15,
1997. Share and per share data for all periods presented have been retroactively
restated to reflect the additional shares outstanding resulting from the stock
split.

INTEREST RATE SENSITIVITY

Achieving consistent growth in net interest income is the primary goal
of the Company's asset/liability function. The Company attempts to control the
mix and maturities of assets and liabilities to achieve consistent growth in net
interest income despite changes in market interest rates. The Company seeks to
accomplish this goal while maintaining adequate liquidity and capital. The
Company's asset/liability mix is sufficiently balanced so that the effect of
interest rates moving in either direction is not expected to be significant over
time.

The Company's Asset/Liability Committee uses a simulation model to
assist in achieving consistent growth in net interest income while managing
interest rate risk. The model takes into account interest rate changes as well
as changes in the mix and volume of assets and liabilities. The model simulates
the Company's balance sheet and income statement under several different rate
scenarios. The model's inputs (such as interest rates and levels of loans and
deposits) are updated on a monthly basis in order to obtain the most accurate
forecast possible. The forecast presents information over a twelve month period.
It reports a base case in which interest rates remain flat and reports
variations that occur when rates increase

<PAGE>

and decrease 200 basis points. According to the model, the Company is presently
positioned so that net interest income will increase slightly if interest rates
rise in the near term and will decrease slightly if interest rates decline in
the near term.

The static interest sensitivity gap position, while not a complete
measure of interest sensitivity, is also reviewed periodically to provide
insights related to the static repricing structure of assets and liabilities. At
June 30, 1997, on a cumulative basis through twelve months, rate-sensitive
liabilities exceeded rate-sensitive assets, resulting in a liability sensitive
position of $170.4 million.

LIQUIDITY

Liquidity management involves meeting the cash flow requirements of the
Company both at the holding company level as well as at the subsidiary level.
The holding company and non-banking subsidiaries of the Company require cash for
various operating needs including general operating expenses, payment of
dividends to shareholders, interest on borrowing, extensions of credit at Blue
Ridge, business combinations and capital infusions into subsidiaries. Sources of
liquidity for the Company's holding company and non-banking subsidiaries include
dividends from Carolina First Bank and non-banking subsidiaries to the holding
company, sale of the Company's commercial paper, existing cash reserves and
earnings.

Carolina First Bank's cash flow requirements involve withdrawals of
deposits, extensions of credit and payment of operating expenses. Carolina First
Bank's principal sources of funds for liquidity purposes are customers'
deposits, principal and interest payments on loans, loan sales or
securitizations, securities available for sale, maturities of securities,
temporary investments and earnings. Carolina First Bank's liquidity is also
enhanced by the ability to acquire new deposits through its established branch
network of 51 branches in South Carolina. Carolina First Bank's liquidity needs
are a factor in developing its deposit pricing structure; deposit pricing may be
altered to retain or grow deposits if deemed necessary. Carolina First Bank has
access to borrowing from FHLB and maintains unused short-term lines of credit
from unrelated banks.

The liquidity ratio is an indication of a company's ability to meet its
short-term funding obligations. FDIC examiners suggest that a commercial bank
maintain a liquidity ratio of between 20% and 25%. At June 30, 1997, Carolina
First Bank's liquidity ratio was approximately 11%. At June 30, 1997, Carolina
First Bank had unused short-term lines of credit totaling approximately $28
million (which are withdrawable at the lender's option). In addition, Carolina
First Bank has access to borrowing from the FHLB. At June 30, 1997, unused
borrowing capacity from the FHLB totaled approximately $15 million with an
outstanding balance of $105 million. Management believes that these sources are
adequate to meet its liquidity needs.

Blue Ridge is currently being funded principally using the proceeds
from the sale of the Company's commercial paper in the retail market. The
Company is actively exploring alternative methods to fund Blue Ridge as the
Federal Reserve Board considers the funding of Blue Ridge to be an inappropriate
use of commercial paper proceeds. The Company expects alternate funding for Blue
Ridge would be at a higher cost.

In connection with the acquisition of Lowcountry, Carolina First
Bank is obligated to pay approximately $4.8 million in cash as consideration
for 40% of Lowcountry's outstanding common shares.

<PAGE>

In July 1997, the Carolina First Employee Stock Ownership Plan ("ESOP")
borrowed $3 million from an unaffiliated financial institution to acquire shares
of stock of the Company. Such stock is pledged as collateral for the loan. The
Company has used the $3 million loan proceeds to fund its subsidiary, CF
Investment Company. CF Investment Company has an application pending with the
Small Business Administration to be licensed as a Small Business Investment
Company.

ASSET QUALITY

Prudent risk management involves assessing risk and managing it
effectively. Certain credit risks are inherent in making loans, particularly
commercial, real estate and consumer loans. The Company attempts to manage
credit risks by adhering to internal credit policies and procedures. These
policies and procedures include a multi-layered loan approval process, officer
and customer limits, periodic documentation examination and follow-up procedures
for any exceptions to credit policies. Loans are assigned a grade and those that
are determined to involve more than normal credit risk are placed in a special
review status. Loans that are placed in special review status are required to
have a plan under which they will be either repaid or restructured in a way that
reduces credit risk. Loans in this special review status are reviewed monthly by
the loan committee of the Board of Directors.

As demonstrated by the following analytical measures of asset quality,
management believes the Company has effectively managed its credit risk. Net
loan charge-offs, including credit card receivables, totaled $5.5 million and
$3.5 million in the first six months of 1997 and 1996, respectively, or 0.96%
and 0.64%, respectively, as an annualized percentage of average loans. Excluding
credit card receivables, annualized net loan charge-offs as a percentage of
average loans were 0.41% and 0.33% during the first six months of 1997 and 1996,
respectively.

TABLE 4
NONPERFORMING ASSETS AND PAST DUE LOANS
($ in thousands)

<TABLE>
<CAPTION>
June 30, December 31,
--------------------- -------------
1997 1996 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $ 778 $ 1,642 $ 960
Restructured loans 1,283 0 1,909
- --------------------------------------------------------------------------------------
Total nonperforming loans 2,061 1,642 2,869
Other real estate 2,426 2,791 3,011
- --------------------------------------------------------------------------------------
Total nonperforming assets $ 4,487 $ 4,433 $ 5,880
======================================================================================
Nonperforming assets as a % of loans
and foreclosed property 0.36% 0.40% 0.52%

Accruing loans past due 90 days $ 2,560 $ 2,455 $ 2,371
======================================================================================
</TABLE>

<PAGE>

INDUSTRY DEVELOPMENTS

Certain recently-enacted and proposed legislation could have an effect on
both the costs of doing business and the competitive factors facing the
financial institutions industry. The Company is unable at this time to assess
the impact of this legislation on its financial condition or operations.

FORWARD-LOOKING STATEMENTS

From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward- looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include, but are not limited to, the
following: risks from changes in economic and industry conditions; changes in
interest rates; risks inherent in making loans including repayment risks and
value of collateral; dependence on senior management; and recently-enacted or
proposed legislation. Statements contained in this filing regarding expected
levels of past due credit cards may be forward-looking statements and are
subject to uncertainties and risks, including, but not limited to, the demand
for Carolina First's products and services, changing economic conditions,
interest rates, consumer spending and numerous other factors.

<PAGE>

PART II

ITEM 1 LEGAL PROCEEDINGS

The Company and its subsidiaries are from time to time parties to
various legal actions arising in the normal course of business. Such
items are not expected to have any material adverse effect on the
business or financial position of the Company or any of its
subsidiaries.

In April 1997, the Company announced the settlement of two lawsuits
involving David Bowers and Monte Bowers, former officers and
shareholders of Midlands National Bank, a Newberry, South Carolina bank
which merged with Carolina First Bank in 1995. One of the lawsuits had
been brought by the Bowers against Carolina First Bank in state court,
alleging breach of employment contracts as officers of Carolina First
Bank following the merger. The other lawsuit was brought in federal
court by Carolina First Bank against the Bowers, alleging that the
Bowers had committed bank fraud and securities fraud in connection with
the merger. The Company is prohibited from disclosing the terms of the
settlement agreement, which were favorable to the Company. Both suits
have been dismissed in connection with the settlement. In March 1997,
the federal court dismissed counterclaims filed in the federal action
by the Bowers, who contended that the Company had misstated earnings
and made fraudulent representations in documents involved in the
merger. The federal court found no wrongdoing by the Company and no
material inaccuracy in the financial statements and merger documents.

On November 4, 1996, a derivative shareholder action was filed in
Greenville County Court of Common Pleas against the Company, Mack I.
Whittle, Jr., William S. Hummers III, Steve Powell and Edward J.
Sebastian. The complaint, as most recently amended, names as additional
defendents the majority of the directors of the Company and Carolina
First Bank and certain other officers. The named plaintiffs in the
amended complaints are Carolina First Corporation by and through
certain minority shareholders, Emory Lester, Beatrice Hutchinson and
John Wesley Purdie, Jr. Plaintiffs allege as causes of action the
following: conversion of corporate opportunity; breach of fiduciary
duty and "constructive fiduciary fraud"; civil conspiracy; and mutual
mistake. The factual basis upon which these claims are made generally
involves the payment to Messrs. Whittle, Hummers and Powell of a bonus
in stock held by the Company in Affinity (as reward for their efforts
in connection with the Affinity investment), allegedly excessive
compensation to the Company's executive officers, transactions between
the Company and entities affiliated with Mr. Sebastian, alleged
concealment of financial problems, alleged mismanagement by Messrs.
Whittle and Hummers involving financial matters and employee matters.
The complaint seeks damages for the benefit of the Company aggregating
$41 million and rescission of the Affinity bonuses. A motion to dismiss
this action is pending.

In an action instituted by the same attorneys bringing the
above-described derivative action, on December 31, 1996, Dan Beckman,
Onida Beckman and Dale Epting filed a class action lawsuit against the
Company, Carolina First Bank, a number of their officers and the
majority of the directors of the Company and Carolina First Bank. In
this action, plaintiffs allege that they are former shareholders of
Midlands National Bank and seek to represent a class of all Midlands
shareholders involved in the merger of Midlands into Carolina First
Bank, asserting that the defendants committed fraud, constructive fraud
and breach of fiduciary duty against the defendants

<PAGE>

PART II
(CONTINUED)

by overstating earnings and thereby adversely affecting the
consideration received by the Midlands shareholders in connection with
the merger of Midlands National Bank into Carolina First Bank. The
complaint seeks compensatory damages of approximately $1.8 million and
punitive damages in an amount to be determined by a jury, attorneys'
fees and other costs. The Company and other named defendants have filed
a motion to dismiss all claims asserted in the lawsuit, which is
pending.

The Company and Carolina First Bank (and related parties) are
contesting the foregoing litigation vigorously and believe that they
will prevail. However, should such not be the case, any damages awarded
in such litigation could have a material adverse effect on the Company.

ITEM 2 CHANGE IN SECURITIES

On February 1, 1997, all outstanding shares of the Series 1993B
Cumulative Convertible Preferred Stock ("Series 1993B Preferred Stock")
were converted into the Company's Common Stock. In connection with such
conversion, the Company issued 108,341 shares of its Common Stock.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

On May 8, 1997, the Company held its 1997 Annual Meeting of
Shareholders. The results of the 1997 Annual Meeting of Shareholders
follow.

PROPOSAL #1 - ELECTION OF DIRECTORS

The following persons were elected as Directors with the votes
indicated.
% of Voting
Shares Withheld
In Favor In Favor Authority
M. Dexter Hagy 9,156,116 94.20% 564,030
H. Earle Russell, Jr. 9,188,551 94.53% 531,595
William R. Timmons, Jr. 9,157,384 94.21% 562,762

Judd B. Farr, C. Claymon Grimes, Jr., William S. Hummers III, Charles
B. Schooler, Elizabeth P. Stall, Eugene E. Stone IV and Mack I.
Whittle, Jr. continued in their present terms as directors.

<PAGE>

PART II
(CONTINUED)

PROPOSAL #2 - INCREASE IN AUTHORIZED COMMON STOCK

The shareholders approved an amendment to the Company's Articles of
Incorporation to increase the authorized Common Stock of the Company
from 20,000,000 shares to 100,000,000 shares with the votes indicated.
% of
Outstanding
# of Shares Shares
For 8,480,123 74.67%
Against 1,153,398
Abstain 67,507
Broker Non-Votes 19,117

PROPOSAL #3 - INCREASE IN AUTHORIZED PREFERRED STOCK

The Shareholders approved a motion to adjourn the Annual Meeting of
Shareholders until May 22, 1997 for the purpose of continuing to
receive votes on this proposal to amend the Company's Articles of
Incorporation to increase the authorized preferred stock of the Company
from 10,000,000 shares to 25,000,000 shares. This proposal required
votes by the actual investors not just the nominee holders. Nominees
holders were unable to vote on behalf of the actual investors on this
issue, resulting in a different voting procedure than that used for
proposals #1 and #2. The two/thirds majority of the shares eligible to
vote, which was required for approval, was not received on proposal #3,
as indicated below.
% of
Outstanding
# of Shares Shares
For 5,640,629 49.67%
Against 1,174,959
Abstain 111,081
Broker Non-Votes 2,862,157

ITEM 5 OTHER INFORMATION

Pending Acquisitions
On July 1, 1997, the Company signed a definitive agreement to merge
with First Southeast, the holding company for First Federal Savings and
Loan Association of Anderson based in Anderson, South Carolina. First
Federal will be merged into Carolina First Bank, a subsidiary of
Carolina First Corporation. First Southeast shareholders will receive
1.0 share of Carolina First common stock for each share of First
Southeast stock, subject to adjustment in the event of a 10%

<PAGE>

PART II
(CONTINUED)

movement in Carolina First's stock based on a price of $15.2125. This
transaction is expected to result in the issuance of approximately
4,388,231 shares of Carolina First Common Stock. First Federal has 11
offices in Anderson, Abbeville and Greenwood counties and plans to open
an additional three branches in Wal-Mart superstores beginning this
summer. At June 30, 1997, First Southeast had approximately $349
million in assets, $274 million in loans and $285 million in deposits.

ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Articles of Amendment dated June 1, 1997 incorporated by reference to
Exhibit 3.2 of the Company's Registration on Form S-4, Commission File
Number 333-32459.

11.1 Computation of Primary and Fully Diluted Earnings Per Share.

12.1 Computation of Earnings to Fixed Charges Ratio.

27.1 Financial Data Schedules.

(b) Reports on Form 8-K

The Company filed a Current Report on Form 8-K dated July 11, 1997.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

Carolina First Corporation

/s/ William S. Hummers, III
William S. Hummers, III
Executive Vice President

<PAGE>

<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE
CAROLINA FIRST CORPORATION AND SUBSIDIARIES
EXHIBIT 11.1

YTD
1ST QTR 1997 2ND QTR 1997 2ND QTR 1997
------------- ---------------- ------------------
<S> <C> <C> <C>
A. Net income.................................. $1,717,000 $4,661,000 $6,378,000
Less: Dividends on preferred stock......... 0 0 0
--------------- ------------------- ------------------
B. Net income applicable to common shareholders... $1,717,000 $4,661,000 $6,378,000
================ =================== ===================
PRIMARY EARNINGS PER SHARE
Average shares outstanding......................... 11,304,437 11,371,845 11,338,141
Dilutive average shares outstanding under options.. 357,493 254,166 305,830
Exercise prices.................................... $4.81 to $16.20 $4.81 to $14.69
Assumed proceeds on exercise....................... $3,748,808 $2,964,284 $3,356,546
Average market value per share..................... 17.16 15.61 16.39
Less: Treasury stock purchased with the assumed
proceeds from exercise of options............... 218,462 189,896 204,792
-------------- ------------------- -------------------
C. Adjusted average shares -- Primary............. 11,443,468 11,436,115 11,439,179
-------------- ------------------- -------------------
Primary Earnings Per Share (B/C)................... $0.15 $0.41 $0.56
============== =================== ===================
FULLY DILUTED EARNINGS PER SHARE
Average shares outstanding......................... 11,304,437 11,371,845 11,338,141
Dilutive average shares outstanding under options.. 357,493 254,166 305,830
Exercise prices.................................... $4.81.to.$16.20 $4.81.to.$14.69
Assumed proceeds on exercise....................... $3,748,808 $2,964,284 $3,356,546
Market value per share............................. 17.16 15.61 16.39
Less: Treasury stock purchased with the assumed
proceeds from exercise of options............... 218,462 189,896 204,792
----------------- ------------------- -------------------
Adjusted averaged shares........................... 11,443,468 11,436,115 11,439,179
--------------- ------------------- -------------------
Common shares from the assumed conversion of
convertible preferred stock..................... 34,915 0 17,457
--------------- ------------------- -------------------
D. Adjusted average shares -- Fully diluted........ 11,478,383 11,436,115 11,456,636
-------------- ------------------- -------------------

Fully Diluted Earnings Per Share (A/D)............. $0.15 $0.41 $0.56
============== =================== ===================
</TABLE>

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1
CAROLINA FIRST CORPORATION AND SUBSIDIARIES

($ in thousands) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1997
------------------- --------------------
<S> <C> <C>
EARNINGS:
Income from continuing operations
before income taxes................................... $ 7,185 9,911

ADD:
(a) Fixed charges........................................ 16,332 31,512

DEDUCT:
(a) Interest capitalized during year.....................
------------------ ------------------
Earnings, for computation purposes......................... $ 23,517 41,423
=================== ==================
FIXED CHARGES:
Interest on indebtedness, expenses or cap................ $ 16,089 31,029
Portion of rents representative of the
interest factor....................................... 211 418
Amortization of debt expense............................. 32 64
------------------ ------------------
Fixed charges, for computation purposes.................... $ 16,332 31,512
=================== ==================

RATIO OF EARNINGS TO FIXED CHARGES......................... 1.44 X 1.31 X
</TABLE>

<ARTICLE> 9
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 69,191
<INT-BEARING-DEPOSITS> 28,401
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 1,619
<INVESTMENTS-HELD-FOR-SALE> 227,946
<INVESTMENTS-CARRYING> 32,126
<INVESTMENTS-MARKET> 32,416
<LOANS> 1,255,691
<ALLOWANCE> 12,175
<TOTAL-ASSETS> 1,705,777
<DEPOSITS> 1,332,551
<SHORT-TERM> 216,042
<LIABILITIES-OTHER> 20,236
<LONG-TERM> 26,507
0
0
<COMMON> 11,379
<OTHER-SE> 99,062
<TOTAL-LIABILITIES-AND-EQUITY> 1,705,777
<INTEREST-LOAN> 28,353
<INTEREST-INVEST> 3,365
<INTEREST-OTHER> 232
<INTEREST-TOTAL> 31,950
<INTEREST-DEPOSIT> 12,605
<INTEREST-EXPENSE> 16,089
<INTEREST-INCOME-NET> 15,861
<LOAN-LOSSES> 3,041
<SECURITIES-GAINS> 798
<EXPENSE-OTHER> 12,239
<INCOME-PRETAX> 7,185
<INCOME-PRE-EXTRAORDINARY> 7,185
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,661
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
<YIELD-ACTUAL> 9.24
<LOANS-NON> 778
<LOANS-PAST> 2,559
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,039
<CHARGE-OFFS> 3,220
<RECOVERIES> 154
<ALLOWANCE-CLOSE> 12,175
<ALLOWANCE-DOMESTIC> 12,175
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>